Today's Mortgage and Refinance Rates: August 2, 2023 | Rates Trend Down From July
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Could August be the month when mortgage rates finally fall? Average 30-year mortgage rates are currently a bit lower than they were a month ago, and they may drop further.
Whether rates decrease this month depends on a variety of different factors, chief among them being inflation. Next week, we'll get to see the Consumer Price Index data for July. This report will tell us how much inflation grew last month, and whether it's continuing to decelerate.
High inflation, along with Federal Reserve rate hikes meant to quell rising inflation, have put immense upward pressure on mortgage rates over the past year and a half. As inflation slows, mortgage rates are expected to come down as well.
According to the Mortgage Bankers Association's latest forecast, 30-year rates could drop back below 6% by the end of this year. This would boost affordability for potential buyers who are currently sidelined by high mortgage rates. But for even lower rates, buyers may want to wait until 2024, when the MBA says rates could drop below 5%.
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30-Year Fixed Mortgage Rates
This week's average 30-year fixed mortgage rate is 6.81%, according to Freddie Mac. This is an 3-point increase from the previous week.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you'll pay back what you borrowed over 30 years, and your interest rate won't change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you'll have a higher rate than you would with shorter terms or adjustable rates.
15-Year Fixed Mortgage Rates
The average 15-year fixed mortgage rate is 6.11% this week, according to Freddie Mac data. This is up 5 basis points from the prior week.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you'll have a higher monthly payment than you would with a longer term.
How Do Fed Rate Hikes Affect Mortgages?
The Federal Reserve has increased the federal funds rate dramatically to try to slow economic growth and get inflation under control. So far, inflation has slowed, but it's still above the Fed's 2% target rate.
Mortgage rates aren't directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
As inflation starts to come down, mortgage rates should, too. But the Fed has indicated that it's waiting for inflation to come down further, which means that more rate hikes could be coming this year.
When Will Mortgage Rates Go Down?
Mortgage rates increased dramatically in 2022 and have been volatile so far in 2023, but they're expected to trend down later this year.
In June 2023, the Consumer Price Index rose 3% year-over-year, a significant slowdown compared to the previous month. This is good news for mortgage borrowers and the broader economy.
As inflation comes down, mortgage rates likely will, too.
For homeowners looking to leverage their home's value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you're borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you'd do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.